15.10.2012 | A closer look at the Ivory Coast microfinance market
Interview with Vincent Lehner, Senior Investment Analyst for West Africa, based in Symbiotics Cape Town offices
Vincent, you have recently been to the Ivory Coast. Could you tell us how the country is doing one year after the change of Government, a period which began with a power crisis and how the financial sector is performing there at this time?
Economically, the situation in the Ivory Coast is improving due to the normalization of security issues, the lifting of sanctions, the resumption of international cooperation and the granting of incentives to the productive sectors. The GDP growth rate is estimated at around +6% for 2012 compared to -6% in 2011. However, the post-election crisis and international community sanctions did take a heavy toll on the Ivorian economy. The country faced a cash shortage and all financial institutions had to stop their activities due to insecurity. The bank clearing system was suspended following the closure of the national agency of the Central Bank of West African States (BCEAO). This closure and the suspension of commercial bank activity eventually led to a liquidity dry-up in the country with an impact on monetary aggregates. The BCEAO estimated that the total loan balance of the financial sector decreased by 8% with a PAR>90 days estimated around 44% in December 2011.
That is pretty severe. Do you note some improvements today?
Yes, thankfully. In June 2012, the PAR>90 days is estimated to have come back to around 25%, with general audits, inspections from the central bank, the restructurization of banks with public capital with possible withdrawal from the state as a shareholder. The financial sector is now headed in a positive direction.
How did microfinance more specifically manage through the crisis up to now?
The microfinance sector in the Ivory Coast is dominated by cooperatives. They faced severe losses during the crisis and as a result some of them are reporting negative equity today. Negotiations are being held with the State to recapitalize some of them but in the meantime disbursements are limited to a minimum. MFIs registered as companies by shares have taken a hit as well, however the two companies with this status that existed before the crisis have been able to restructure and be recapitalized quickly through equity and are proving to now be market leaders. New institutions have just started operations as well and should play an important role in the near future.
How different is the situation between the capital, Abidjan, and the rural areas?
Until today, the improvement of the economy has mainly been noticed in the capital, Abidjan. Bank branches are concentrated there and cooperatives are the main players in the rural areas. However, and for the aforementioned reasons, they have not yet been able to restart their operations properly. This being said, new MFIs are now seriously considering to work in provincial cities and in the rural sector. As the resources of the country are mostly linked to the agriculture sector, the growth potential is indisputable as
well as the social impact these initiatives could have on economic development in the country.
What role do you see microfinance playing in this new Ivorian economy?
Microfinance activity should grow in the rural sector, the main provincial cities and in Abidjan. Financial services are scarce in the Ivory Coast today and banks are primarily focused on corporate clients and only the very high end of the Small and Medium Enterprise (SME) segment. Micro and small entrepreneurs have an urgent need for financial services such as loans, but also well-tailored solutions for deposits, money transfers and insurance products.
What would be required for a sound development of microfinance and what products do you think are still missing today?
The sector has not seen any improvement in the last two to three years due to the crisis. The Ivoirian MFIs will need to consequently first catch up and implement current international standards of microfinance loan and deposit products. In a second phase, they will be required to innovate in order to improve customer services where mobile banking, for example, could have a major role to play. Rural and agricultural products will have to be tailored to the local needs and deposit products adapted to local customs. In many West African countries, such as Ghana or Nigeria, daily "susu" collectors or "tontines" are extremely popular and effective. These would also work well here and could be adapted to the Ivory Coast microfinance sector.
Is there any microfinance regulation in place?
Unfortunately, regulation in the country has not evolved in the last three years and the microfinance sector has not been the first priority of the post crisis government. But the government is aware of the needs of the sector and has shown its intention to tackle some of its main problems. The new PARMEC law, regulating the microfinance sector in the BCEAO region, should be voted in by the parliament this year and the government is considering to create a microfinance development fund in partnership with some UN agencies to help develop the sector. The compulsory use of credit bureaus for the microfinance sector is also expected. However, some time will be needed before any of these measures will be implemented.
Can you tell us about a small business or micro entrepreneur that you met during your last field visit that exemplifies the Ivorian Coast situation today?
During my last field visit, I met a dentist who was looking into getting a loan as he needed to replace his dentistry operating chair which amounted to USD 20,000, which is high amount to request for in the sector. Apart from the income he obtained from his private clients, he had another regular source of income to secure the loan as he was a university professor but he was not able to obtain a loan through the regular banking channel. In other countries, such clients would benefit from preferred conditions to obtain a loan from commercial banks. In the Ivory Coast however, banks mostly focus on corporate companies and abandon this of client to MFIs.
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